An example of what could soon be in store for SOT.un ....... management .... as per what is happening with FCR.
Activist at the Door: Ewing Morris Publishes Open Letter to Unitholders
Bottom Line:
The Canadian REIT sector is seeing its first activist activity this year as Canadian investment firm Ewing Morris released an "Open Letter to Fellow First Capital REIT Unitholders," with certain requests to support their goal of restoring a premium valuation for FCR.UN, which has been trading at a wide discount to NAV. We expect this open letter to generate wider discussions among stakeholders, which may result in material changes at First Capital.
Key Points
Going public via an open letter. Canadian investment firm Ewing Morris has published an open letter to FCR.UN unitholders (press release), outlining its dissatisfaction on a number of issues including the unit price performance, the REIT's leadership, the recent distribution increase (flash), and the REIT's disposition strategy (flash). It is not clear how much FCR.UN stock Ewing Morris owns, and recall that FCR.UN does not have a major strategic unitholder. At this time, First Capital has not publicly responded.
Ewing Morris is making three requests of First Capital:
1 . The retirement of the current Chair of the Board of Trustees, Bernard McDonell, and appointing Kelly Marshall as a new Independent Chair. Mr. Marshall is currently the Chair of Granite REIT.
2 . Appoint Darcy Morris to the Board of Trustees. Mr. Morris is the co-founder and CEO of Ewing Morris.
3 . Suspend all asset sales "...until the Board transition is complete."
Given deep discount valuation in REIT sector, not surprising to see activism emerge. With the REIT sector trading at a significant 20%+ discount to NAV, and specifically FCR.UN at -23% to BMO Research's NAV and -38% to IFRS NAV, it is not surprising to see activist activity emerge. This may provide some support for the sector as investors take a deeper look at REIT portfolio values.
Our take: starting a conversation, but pathway unknown. Ewing Morris states that it wants to "appeal directly to unitholders for change." We believe this open letter will start a broader conversation among stakeholders on First Capital's strategy and corporate structure. However, at this point it is unclear what may emerge. We believe Ewing Morris' requests are the first steps toward further examination of First Capital's strategy, which may result in changes to the Board of Trustees, additional strategic initiatives, or possibly a formal strategic review.